Section 453.1 sets forth how pharmacy benefit managers licensed or registered pursuant to Insurance Law article 29 are assessed for the operating expenses of the Department attributable to regulating such pharmacy benefit managers.

Section 453.2 sets forth the billing and assessment process.

Section 453.3 sets forth how assessments of pharmacy benefit managers will be calculated.

Section 453.4 sets forth penalties for noncompliance of pharmacy benefit managers for failing to submit their reported number of claims by January 15 of each year.

Section 453.5 sets forth special assessments. In the event the Superintendent determines that expenses associated with a specific examination, investigation, or review are best allocated solely to an individual registrant or licensee subject to such examination, investigation, or review, such expenses shall be billed separately.

The title of Part 454 is “Filings and Other Requirements for Issuance and Maintenance of a License.”

Section 454.1 sets forth the requirements that pharmacy benefit managers must follow in order to obtain a pharmacy benefit manager license.

Section 454.2 establishes that pharmacy benefit managers are covered entities under 23 NYCRR Part 500 and as such shall be in compliance with the cybersecurity requirements contained therein.

The title of Part 455 is “Reporting and Record Keeping Requirements.”

Section 455.1 sets forth the standards for maintaining records that pharmacy benefit managers must follow.

Section 455.2 sets forth the records that pharmacy benefit managers are required to maintain.

Section 455.3 establishes disclosure requirements for pharmacy benefit managers to the Department.

Section 455.4 sets forth the annual reporting requirements for pharmacy benefit managers.

1. Statutory authority: Financial Services Law sections 102, 201, 202, 301, 302, 304, 305, and 306; Insurance Law sections 301, 316, 2904, 2905, 2906, and 2914; and Public Health Law section 280-a.

Descriptions of the statutes providing authority for the new regulation are included in the full Regulatory Impact Statement posted on the website of the Department of Financial Services (“Department”) at https://www.dfs.ny.gov.

2. Legislative objectives: In accordance with Insurance Law Article 29 and Public Health Law section 280-a, the legislative objectives are to empower the Superintendent to establish by regulation licensing and reporting requirements for pharmacy benefit managers (“PBMs”), including the broad regulatory authority to implement minimum standards for the issuance of licenses to PBMs. The consolidated rulemaking will establish these methods and procedures.

3. Needs and benefits: This consolidated rulemaking will establish the licensing and reporting standards for a PBM to perform pharmacy benefit management services in New York. This proposed consolidated rulemaking is necessitated by the enactment of Insurance Law Article 29 and Public Health Law section 280-a, providing the Superintendent with broad independent regulatory authority over PBMs, which have previously been largely unregulated in this State. The legislation recognizes that the State has an interest in the prudent regulation of the industry, which impacts health insurance premium costs, patient access to drugs, the pharmacy industry in the State, and more.

Details specifying how each Part of the consolidated rulemaking is needed to enforce the provisions outlined in Insurance Law sections 2904, 2905, 2906, and 2914, as well as Public Health Law section 280-a, are included in the full Regulatory Impact Statement posted on the Department’s website at https://www.dfs.ny.gov/industry_guidance/regulations/proposed_insurance.

4. Costs: Insurance Law section 2906(d) requires a non-refundable license application fee of $8,000 for every year or fraction of a year in which a license is valid and determines that a PBM’s license expires 36 months after the date of issue, which results in a $24,000 license application fee. Such fee is imposed by the statute and not this consolidated rulemaking.

Insurance Law section 2914 requires a registered and licensed PBM to pay assessments to the Department for its operating costs relating to the regulation of PBMs. The assessment costs are imposed by the statute, but the frequency and calculation of the assessment costs were left to be determined by the Superintendent by regulation. Part 453 establishes that the assessments will be calculated by considering the total cost to the Department divided pro rata among registrants and licensees under Chapter XXI based on the aggregate total number of claims processed for New York pharmacies by the registered or licensed PBMs.

Further details on the assessment costs calculations and provisions under Part 453, as well as other costs associated with the reporting requirements in Insurance Law sections 2904, 2905, and 2906 and Public Health Law section 280-a, are included in the full Regulatory Impact Statement posted on the Department’s website at https://www.dfs.ny.gov/industry_guidance/regulations/proposed_insurance.

5. Local government mandates: The proposed consolidated rulemaking does not impose any program, service, duty, or responsibility upon a county, city, town, village, school district, fire district, or other special district.

6. Paperwork: Insurance Law sections 2904, 2905, 2906, and 2914, and Public Health Law section 280-a impose reporting, recordkeeping, and other compliance requirements on PBMs operating in New York.

Details on these reporting, recordkeeping, and other compliance requirements are included in the full Regulatory Impact Statement posted on the Department’s website at https://www.dfs.ny.gov/industry_guidance/regulations/proposed_insurance.

7. Duplication: The proposed consolidated rulemaking does not duplicate or conflict with any existing state or federal rules or other legal requirements.

Specifically, the Department has determined that this proposed consolidated rulemaking is neither in conflict with nor interferes with any of the provisions of the Employee Retirement Income Security Act (“ERISA”), or the Centers for Medicare and Medicaid Services’ (“CMS”) Medicare Part D standards pursuant to the Social Security Act section 1856(b)(3), as amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173 (“MMA”).

8. Alternatives: Promulgation of the proposed consolidated rulemaking is required under Insurance Law Article 29 and Public Health Law section 280-a. Without the consolidated rulemaking, the Department would not be able to effectuate its new statutory powers and responsibilities; therefore, the alternative of not promulgating the consolidated rulemaking was rejected. Additionally, the Department considered various alternatives to each section of the consolidated rulemaking and in general sought input from interested parties in drafting same, including representatives from the PBM industry, independent pharmacies, chain pharmacies, health plans, and consumer representatives, among others. The Department also consulted with, and sought input from, the New York State Department of Health and the Office of General Counsel of the Workers’ Compensation Board in drafting this regulation.

For the calculation of assessments to PBMs, the Department considered options such as basing the assessed amount on the size of a PBM with respect to revenue or total assets of the entity, or dividing the PBMs into industry types, similar to banking division assessments, among other options as noted above. However, these options were determined to be unreliable or unusable as many of the larger PBMs have vertically integrated structures that can potentially hide revenue or assets to make the actual PBM entity appear smaller than it is and were not necessarily based on the PBM’s volume of activities in New York. Additionally, the Department determined that there was no easy way to classify different types of PBM entities in order to create an assessment structure similar to banking division assessments, as there are no sub-classifications for PBMs like there are for financial institutions. The most equitable assessment cost determination method was found to be based upon the total number of claims processed in New York for each registered or licensed PBM.

Additionally, the Department had considered assessing in arrears as opposed to projected costs that are reconciled at the conclusion of that year. The Department determined that assessing in arrears would potentially allow a PBM to cease operations prior to the assessments being calculated and therefore avoid being charged the assessment fee owed by it. Calculating assessments in arrears would also differ from all other assessments conducted by the Department, so it was determined that the best course of action would be to conform with existing assessment procedures.

For the content, form, and manner in which PBMs would submit the license application and ongoing annual reports, the Department consulted with various other states regarding the alternatives they considered in drafting their licensure and reporting regulations and the issues they encountered when enacting same. The Department also reviewed various other states’ licensure and reporting regulations. After careful consideration, the Department decided to align the annual report and licensing requirements to be consistent with requirements set by a majority of other states. An alternative to this consolidated rulemaking would be to require PBMs to submit documents in a manner that is inconsistent with what they already are required to do in other states, which the Department rejected as unnecessarily burdensome.

Additionally, the Department considered having license applications and annual reports to be filed by hard copy submissions. However, the Department decided that this would not be the best option given the volume of papers that may need to be submitted, requiring the use of paper and postage, ultimately making this option more costly and burdensome. The Department therefore decided against this option in favor of electronic filings of all forms and documents, being the most cost effective and least burdensome on those filing.

For the provisions relating to record keeping requirements and disclosures, the Department considered more extensive recordkeeping and reporting requirements but determined the more cost effective and less burdensome alternative would be to require only the PBMs to maintain the documents that they already should have in their possession and to only report those documents to the Department if the Superintendent deems it relevant and necessary so as not to impose any unreasonable or unnecessary burden on the PBMs.

9. Federal standards: The proposed consolidated rulemaking does not exceed any minimum standards of the federal government for the same or similar subject areas.

Specifically, the Department has determined that this proposed consolidated rulemaking is neither in conflict with nor interferes with any of the provisions of the Employee Retirement Income Security Act (“ERISA”), or the Centers for Medicare and Medicaid Services’ (“CMS”) Medicare Part D standards pursuant to the Social Security Act section 1856(b)(3), as amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173 (“MMA”).

10. Compliance schedule: The proposed consolidated rulemaking will take effect immediately upon publication of the Notice of Adoption in the State Register. PBMs will be required to comply with the requirements contained in the consolidated rulemaking on and after the publication of the notice of adoption in the State Register.

This consolidated rulemaking only applies to pharmacy benefit managers operating in New York. The Department of Financial Services (“Department”) has reviewed the records of all currently registered pharmacy benefit managers and has made various inquiries to industry groups regarding whether there are any pharmacy benefit managers operating in New York that are small businesses. Based thereon, the Department has determined that there are no pharmacy benefit managers operating in New York that are small businesses or local governments. Therefore, this consolidated rulemaking will not impose any adverse economic impact or reporting, recordkeeping or other compliance requirements on small businesses or local governments.

This consolidated rulemaking only applies to pharmacy benefit managers. The Department of Financial Services (“Department”) has reviewed the records of all currently registered pharmacy benefit managers and has determined that there are no pharmacy benefit managers located in any rural area of New York. Therefore, this consolidated rulemaking will not impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas.

The Department of Financial Services (“Department”) has determined that the consolidated rulemaking should not adversely impact jobs or employment opportunities in New York. Part 453 establishes the procedures, computations, and additional special circumstances for assessments that pharmacy benefit managers (“PBMs”) are required to pay for the operating expenses of the Department; Part 454 establishes the licensure standards required for PBMs to perform pharmacy benefit management services in New York; and Part 455 establishes the annual reporting standards required for PBMs, as well as the reporting, recordkeeping, and other compliance requirements as they relate to PBMs reporting to the Department. PBMs already are required to comply with the above pursuant to Insurance Law sections 2904, 2905, 2906, and 2914 and Public Health Law section 280-a. This consolidated rulemaking is needed to implement those statutory requirements.

Further, the proposed amendment to Part 450 merely amends the definition section of that Part to include additional definitions for certain terms and words that are used in Chapter XXI. The amendment to Part 450 does not substantially change any provision that would impact jobs or employment opportunities in New York State in any way.